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Macroeconomic Issues Finance Library

The Competitive Advantage of Nations

Michael E. Porter (1990)


Why Read It?

  • Builds on Porter’s earlier books on competition among companies, to introduce a theory on how nations compete against each other and how skills and success can become clustered in different areas.

  • Re-examines the nation state, suggesting that its basic role is now an economic one, and that it has a key role to play in ensuring the competitive success of the companies operating within its borders.

  • Gives useful examples from 10 countries to support his arguments about global competitive advantage and success.

 

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Getting Started

The Competitive Advantage of Nations offers a radical new perspective on the role of nations: from being military powerhouses they are now economic units whose competitiveness is their key to power. It emerged from Porter’s work on US President Ronald Reagan’s Commission on Industrial Competitiveness.

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Author

Michael E. Porter (b. 1947) is a Professor at Harvard Business School, and has won many fellowships and awards for his work on competitive strategy. He was appointed to the President’s Commission on Industrial Competitiveness by President Reagan, and is a four-time recipient of the McKinsey Award.

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Context

  • Enquires into what makes national economies successful, and how they can affect company success to improve the well-being of the nation.

  • Develops the concept of the national diamond made up of four forces: factor conditions; demand conditions; related and supporting industries; and company strategy, structure, and rivalry; which together determine whether a nation has competitive advantage or not.

  • Offers a series of prescriptions about what governments should do to improve their country’s competitiveness.

  • Argues that companies and industries have become globalized, and more international in their scope and aspirations than ever before.

  • Provides an account of why particular industry clusters emerged in some countries and not others, and why they are able to create and sustain competitive advantage against the world’s best competitors in a particular field.

 

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Impact

  • Asks what makes a nation’s businesses and industries competitive in global markets and what propels a whole nation’s economy to advance.

  • Shows that when governments deliberately set out to help companies compete their efforts are often counterproductive.

  • Proposes a theory on the relationship between the nation state and the globalized economy that many have disagreed with in terms of market access.

 

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Quotations

Productivity is the prime determinant in the long run of a nation’s standard of living.

Nations don’t compete. Companies compete. Nations can make it hard or easy for them to do so.

Nations succeed not in isolated industries, but in clusters of industries connected through vertical and horizontal relationships.

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Further reading

Book:

  • Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, 1985. Presents a traditional view of strategic thinking.

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